As we approach conference season, with the cost of living at the top of the political agenda and green policies under attack for their cost, energy policy is guaranteed to stay in the political spotlight. Although there is a broad consensus on the measures in coalition's latest energy bill, the dividing lines at the next election are starting to emerge. Labour are advancing towards ever tighter regulation of the "big six" suppliers, taking greater political control of the sector but also creating huge barriers to entry. Under Labour we could expect the six to shrink even further.

On the other hand, Conservatives are forging an agenda to encourage competition, innovation and greater consumer choice by attracting new entrants into the market, banking on more competition, diversity and choice to deliver a better deal for consumers.

When the UK electricity sector was privatised in the 1990s, one vast state-run monopoly became a teeming market of new firms, competing for the business of the British consumer. Thirteen years of Labour government put a stop to that. By 2010, just six energy companies controlled over 90% of the UK sector. So where do we go from here? We certainly need big, successful national energy players, with balance sheets capable of supporting huge investment in new UK energy projects, as well as of helping us compete in the global race for jobs and growth. Indeed, Britain can lead the world in offshore wind and new nuclear. But technologies such as these are an important part of a diverse energy mix, not the entire recipe.

Our electricity market reforms (EMR) will encourage the existing independents, as well as potential new players, to scale up and challenge the big six; but this is also not the whole answer.

To complement EMR, we need an explosion in consumer choice. I want companies, communities, public sector and third sector organisations to grab the opportunity to generate their own energy and start to export their excess on a competitive, commercial basis. Not just a few eco-exemplars – the big six need to become the big 60,000.

This is a vision that happily unites the drive to get a better deal for hard pressed consumers with ambitions for a greener, more local energy sector. To achieve this we need a new generation of energy entrepreneurs and disruptive, local new entrants. We need companies not just meeting their own energy needs but supplying their neighbours too.

Back in 2006, I published a pamphlet, Power to the People, which called for a radical new approach to usher in an age of popular decentralised energy. In government the coalition has made great progress: the number of decentralised energy installations in homes and businesses has leapt from a few thousand under Labour to over half a million and is continuing to grow all the time. But we must go further.

In Denmark, distributed energy meets around 30% of the nation's heating and electricity needs and in the industrial Netherlands nearly 40% of energy is met from decentralised sources. The largest share is met by gas fired combined heat and power plants.

There is a lesson here for the environmental lobby. Gas is not a bogeyman. If used to the highest environmental standards, gas can be our ally. If we are to scale up distributed energy and, at a time of a rising cost of living, ensure that energy bills are affordable, then over the medium term – in a way that is compatible with our climate targets – we will need more gas not less. Unabated coal should be the committed environmentalist's number one target, not gas, the cleanest and most efficient of fossil fuels.

So here is the challenge for the next Conservative government. How to encourage both massive investment in our large scale energy infrastructure and re-engineer our grid to be smarter, whilst also unleashing the potential for all scales and types of community and distributed generation.

I have stated that my personal ambition is to see over 20GW of solar deployed in the UK by the next decade. We could achieve that huge figure by covering just 14% of our industrial and commercial roof spaces with increasingly efficient solar photovoltaic panels. But solar is not the only technology we need to deploy with greater ambition.

The UK is bursting with innovation across a range of energy technologies. Combined heat and power (CHP) plants, particularly in larger industrial, commercial and retail premises could also help supersize our local energy economies. If CHP can work in Slough business park, at British Sugar in Norfolk, at Waitrose in Bracknell or in the heart of Sheffield, Birmingham and even in Whitehall, it can work anywhere.

And experience of the last three years has shown that installing a decentralised energy system is a terrific spur for people to slash their unnecessary energy use and become more efficient.

Thanks to falling costs and innovation, if approached with sufficient financial rigour, affordable big expansion of small energy is achievable. We can build the big 60,000. Success will require the government as an active partner in growth. But the prize is growth, jobs, economic resilience, a better deal for the consumer, a cleaner, greener, safer environment and energy security. Doesn't that sound like a Conservative agenda?

• This is an extract from the forthcoming collection of essays Green conservatism: protecting the environment through open markets. The full essay is published on Green Alliance's website